The writer is chief executive of the Resolution Foundation think-tank
The snow and strikes which dominated UK headlines last week have a surprising amount in common. Both close schools and cancel trains but, while the snow has melted away leaving little trace, strikes are here to stay well into 2023.
There is a great deal of industrial action around, and a great deal of confusion about its causes and consequences. But we have to recognise that widespread stoppages are an inevitability, not an aberration.
Britain is an energy importer during a global energy crisis. More expensive imports mean the country is getting poorer, but they don’t automatically determine who gets poorer or how. That is instead shaped by power, policy and politics, as well as markets. Strikes are just one part of that messy process. It’s no coincidence that in the 1970s both energy prices and industrial disputes surged.
The scale of the pain to be shared is large, with the highest inflation in four decades. Capital and labour are in an unusually high stakes contest, and one with plenty of scope for both to lose: real wages are down by 2.7 per cent over the past year, but profits as a share of gross domestic product aren’t rising and firms expect their costs to grow faster than their revenues going forward. Big winners are something seen in early-pandemic PPE contract competitions, not in today’s industrial disputes.
High-profile rail strikes, plus the first walkout in the Royal College of Nursing’s history and stoppages by ambulance workers, highlight the focus of disputes in the public (and pseudo-public) sector. Private sector workers lack the unionisation rates (only 13 per cent are members) for widespread strike action. Instead, thanks to their good fortune of holding this contest during a tight labour market, they can seek a pay rise via individual power: a resignation letter, threatened or actual. Threatening to move employer is less use for public sector workers given centrally set wages, but with 50 per cent of them in a union, it is collective power taking centre stage.
Jeremy Hunt, the chancellor, has warned, unpersuasively, that successful strikes for higher public sector pay risk stoking inflation. Fast rising prices are causing public sector strikes not vice versa, and it is far higher wage growth in the private sector that is concerning inflation hawks at the Bank of England.
There are real trade-offs when it comes to public sector pay, but they’re not about wage-price spirals. Nurses’ salaries can’t cause that kind of spiral when the NHS, thankfully, doesn’t have prices. Instead it’s wage-tax spirals that really worry the government. Having already announced plans to raise the tax take to its highest level since the second world war, Hunt wants to avoid further major tax rises before a 2024 general election.
Higher public sector pay has to be paid for and decisions about it are best seen as balancing the extent to which Britain becoming poorer falls specifically on public sector workers or — more broadly — on taxpayers or public service users.
Ignore the claims that it would cost an extra £28bn to inflation-proof public sector wages — some pay rises are already pencilled in and public sector workers do actually pay tax. But the burden-sharing choices being made here are substantial: double-digit pay rises could easily cost low double-digit billions.
Seen through that lens, the chancellor’s approach is understandable. But it is also untenable. The chasm between public and private sector pay growth (2.7 per cent vs 6.9 per cent respectively) is not sustainable. The government can set pay rates for public sector jobs, but it can’t force people to take them. There’s a reason why vacancies in healthcare and education remain at near-record highs.
Widespread industrial action will affect the economy in 2023. The direct economic impact of closing the rail network is small, but the indirect effects are significant (a third of rail commuters have jobs that can’t be done from home). Strikes in the NHS will mean fewer operations and, with more than 7mn people already waiting to start routine treatment, it’s clear our failure to improve the population’s health is undermining our ability to generate wealth.
Ministers will say that this is why workers should stop striking. But a more pragmatic conclusion is that there are real benefits from resolving the disputes quickly. A pay rise agreed today is cheaper than the same one agreed six strike-filled months later.
Strikes are a symptom, not a bug, of where the UK economy finds itself. Prepare for more picket lines in 2023.
